Project Background Risk Management Construction Essay

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Following the approval of Team Ds business case at the gateway 1 review, Team D is required to progress to gateway 2 review and present a procurement strategy. The Team is required to divide the procurement strategy equally, whereby each team member submits their portion of the procurement strategy individually. This document focuses on the Project Background, Risk Management, and the Environmental & Social Impact portion of the procurement strategy.

Table of Contents

Table of Figures

Introduction

In October 2012, Team D was required to submit a business case for the OGC Stage Gateway Review (gateway 1 review) consisting of recommendations to meet the increasing capacity demand at Sydney Kingsford-Smith Airport: due to the increasing forecasted passenger movements in the Sydney region.

Team D proposed constructing a Type 1 airport in the Badgerys Creek site (Nepean locality) because they found that the Badgerys Creek site was one of the most viable sites to build on: a result depicted in their Cost-Benefit Analysis (CBA); majority of the site is owned by the Commonwealth Government; the site met the shortlisting criteria; and the site provided a better long-term strategy as it is expected to generate more business than the other shortlisted sites. The business case has been approved and Team D is now required to submit a procurement strategy for the stage gateway 2 review.

Project Background

In March 2012, a steering committee chaired by the Australian Department of infrastructure and the NSW Department of Planning and Infrastructure submitted a report to Parliament addressing Sydney Kingsford-Smith Airport's growing and future capacity demands with recommendations to address the Sydney region's aviation and infrastructure requirements.

As an outcome of the report, the committee established a strategy to ensure the Sydney region's long-term aviation infrastructure requirements and maximisation of community economic and environmental outcomes are met. The key parts of the strategy were: optimisation of Sydney Kingsford-Smith Airport; protection and optimisation of other existing airports within the Sydney region; and selection and confirmation of a new site for the development of a new supplementary airport.

To address the strategy, Team D submitted a business case proposing the construction of a new supplementary airport for the Sydney region in the Nepean, Hawkesbury, or Central Coast localities. The new airport would be able to meet the forecasted demand of the increasing passenger movements in the Sydney region, and also be expandable to a full service airport capable of meeting all market segments.

Team D used the following Key Selection Criteria (KSC) to shortlist the localities: proximity to demand and growth centres; site suitability in relation to terrain suitability for constructing the airport; aviation development capacity; airspace conflicts with existing airports/flight paths; and environmental impacts. Using a SWOT analysis to compare the strengths against the weaknesses of each of the above mentioned localities, Team D found that the strengths of the Nepean locality far outweighed the weaknesses, in comparison to the Hawkesbury and Central Coast localities. Furthermore, Team D found the Nepean locality best met the outlined KSCs through the opportunities from initiating the project in that locality.

To meet the increasing capacity demand at Sydney Kingsford-Smith Airport Team D proposed the new supplementary airport to be constructed as either a Type 1 full service airport or a Type 3 limited service airport serving all Regular Public Transport (RPT) segments. Through their CBA, Team D found that the Cost-Benefit Ratios (CBR) was higher for a Type 1 airport over a Type 3: it was concluded that the higher CBR reflected a higher economic value that a Type 1 airport would provide in the future.

Team D's recommendation to construct a new supplementary Type 1 airport in the Nepean locality, on the Badgerys Creek site was accepted in October, 2012. As part of OGC stage gateway review process, Team D has completed stage gate 1 and is to submit a procurement strategy to meet the requirements to complete the stage gateway 2 review.

Risk Management

The construction of the new supplementary airport embodies a variety of risks: at the corporate level, risks which may hinder Sydney Kingsford-Smith and the proposed Badgerys Creek airports' achievement of their long-term objectives, within the context of the strategy proposed by the steering committee to meet the Sydney region's aviation infrastructure requirements.

In the initial risk assessment (in the business case) Team D identified four severe risks: two 'catastrophic' and two 'hazardous' risks:

[Catastrophic] Risk A: The Environmental Impact Statement (EIS) does not cover all aspects of the project.

[Catastrophic] Risk B: Lack of integration of existing services with the new construction.

[Hazardous] Risk C: Accessibility and mobility of the public is less than adequate, with the potential for injuries and/or discrimination related issues.

[Hazardous] Risk D: Contractor/s claiming Extension of Time (EOT) resulting in delay costs and delayed hand-overs.

To address these risks Team D proposed the following risk mitigation measures:

[Mitigation Strategy] Risk A: Engage an independent subject matter expert to peer review the EIS to make recommendations as required, and to ensure all the EIS requirements are met prior to main construction contract commencement.

[Mitigation Strategy] Risk B: Audit existing power/communication systems and refurbish any suspected of inadequacy; design a back-up system to prevent power/communication losses; include contract stipulation/s protecting from such losses.

[Mitigation Strategy] Risk C: Design and construct all public access areas in accordance with all relevant Australian Standards; consultation with community groups to gain buy-in from the public in the context of design.

[Mitigation Strategy] Risk D: Strong supervision and co-ordination of works to ensure work is completed on schedule; regular communication meetings held with both parties throughout the project for early detection of potential delays; limit liability for delay claims.

Upon execution of these mitigation measures Team D found that the residual risk associated with the above mentioned risks was significantly lower - the likelihood (subjective) had decreased significantly and the consequence (numerical) was relatively lower:

[Now Medium] Risk A: Consequence reduced from 3 to 2.

[Now Low] Risk B: Consequence reduced from 5 to 2.

[Now Low] Risk C: Consequence reduced from 3 to 2.

[Now Low] Risk D: Consequence reduced from 3 to 2.

Risk Management Framework

The risk management framework used in this document is a six phase process where each phase is comprised of three actions (see Figure 2, p. 8). In this framework risks are categorised into two types: initial risk and residual risk. Initial risks are the consequence & likelihood of issues when the risks were first identified; whereas, residual risks are risks that remain - albeit with a reduced risk rating due to decreased consequence & likelihood - after the risk control measures have been implemented.

Phase 1: Risk Identification

In this phase risk events are identified and categorised as; environmental, legislative/political, social, health & safety, and operational. The output of the risk identification phase is a listing of risks and the factors which contribute to its cause. Listing the sources associated with each identified risk event in the list; risk events may have multiple sources related to each situation, which is why identifying the root source is imperative to effectively applying risk control measures.

Phase 2: Risk Assessment

Risk assessment is the phase where the various impacts of identified risks may have on the project are qualitatively & quantitatively assessed. There are three aspects to risks: likelihood, consequence and the risk rating. The likelihood is a qualitative assessment of the extent of whether risks cause loss; consequence is a quantitative assessment of the extent of the potential loss; and the risk rating is a combined assessment (using the risk matrix, see Figure 1, pp. 7) of the resources affected by the potential loss.

Phase 3: Risk Control Analyses

In this phase risks prioritised based on the need for being controlled. Here, the responsible party investigates specific control measures and mitigation strategies to resolve or reduce either the likelihood or consequence or both, of the risk. Some control measures are: avoidance, transference, sharing, mitigation, reduction and exploitation (for positive risks).

Phase 4: Risk Control Execution

To execute the most effective control measure/mitigation strategy, the decision-making party is responsible for selecting a control measure or a combination of control measures that best meet the risks' resolution requirements. Selecting control measures to execute from the range of measures identified in phase 3, requires the appropriate decision-maker to assume accountability for their implementation. The selected control measures will help reduce the risk to an acceptable level. To ensure this occurs, clear directives are necessary to help provide a picture for successful implementation.

Phase 5: Residual Risk Assessment

Here, the identified risks which were placed under control measures require re-assessment: if the selected control measure is ineffective, a new measure is needed; if the measure has been successful - thus decreasing the likelihood and/or consequence of the risk - the risk will have a new risk rating, albeit a lower rating than it was as an initial risk.

Phase 6: Risk Monitoring & Review

The risk management process is ongoing throughout the project life-cycle. Once the control measures are in place, the process should be systematically re-evaluated to ensure the framework remains consistently effective. The sixth phase involves determining the effectiveness of the chosen and executed control measures throughout the risk's operation. This consists of three parts: monitoring, revision and reflection (feedback and lessons learnt).

Risk Matrix

Qualitative & Quantitative Assessment

Consequence

Minor

Moderate

Major

Hazardous

Catastrophic

1

2

3

4

5

Likelihood

Almost Certain

A

Medium

Medium

High

Extreme

Extreme

Very Likely

B

Low

Medium

High

Extreme

Extreme

Likely

C

Low

Medium

High

High

Extreme

Unlikely

D

Low

Low

Medium

High

High

Very Unlikely

E

Low

Low

Medium

Medium

High

Figure - Risk Matrix

Low Risk: Acceptable. Review at next interval.

Medium Risks: Only tolerated if examination proves them to be As Low As Reasonably Practicable (ALARP). Implement management plans to prevent their occurrence and monitor for changes. Reduce to Low Risk if the benefits outweigh the cost.

High Risks: Undesirable. Verify, and where possible, quantify the accuracy and certainty for the existing risk level. Implement control measures to ensure risk level is reduced to or is confirmed to be ALARP. Operation at this level requires management approval.

Extreme Risks: Intolerable. Do not commence or continue at this risk level. Implement control measures to ensure the risk level is reduced. Communicate and consult thoroughly to ensure the positive benefits outweigh the negative impacts.

Phase 2 - Risk Assessment

Phase 1 - Risk Identification

Figure - Risk Management Framework

Output - Risk Register

Review

Risk Control

Risk Evaluation

Risk Identification

Action C:

Reflection & Feedback

Action B:

Review Risks & Revise

Action A:

Supervise Risks

Action A:

Quantify Risk Consequence

Action B:

Qualify Risk Likelihood

Action C:

Determine Risk Rating

Action A:

Identify Control Measures

Action B:

Identify Control Time Frame

Action C:

Identify Control Resources

Action A:

Select Control Measures

Action B:

Set Clear Directives

Action C:

Accountability Assignment

Action A:

Quantify Residual Consequence

Action B:

Qualify Residual Likelihood

Action C:

Determine Residual Risk Rating

Phase 6 - Risk Monitoring & Review

Phase 5 - Residual Risk Assessment

Phase 4 - Risk Control Execution

Phase 3 - Risk Control Analyses

Action C:

Identify Risk Impact Area

Action B:

Identify Risk Source

Action A:

Identify Risk Event

Risk Mitigation

Environmental Risks

At the operational level, managing environmental risks has been incorporated in the planning process to ensure complete compliance with the relevant Australia building codes and standards for airport development, from inception to completion. To mitigate these risks an environmental audit process is in place to assess the environmental performance of the airport's development and operation.

Legislative/Political Risks

Violating the law, contract breaches, non-compliance with the relevant Australian building codes and standards can result in legislative/political risks: the accountable party will take a proactive approach to manage these risks: by monitoring changes to government legislation and policy. Using internal policies, procedures and appropriate action to address these changes, the accountable party will help reduce the risk rating to an acceptable risk level.

Social Risks

Public opinion and the socio-economic dynamics of the area monitored closely to manage possible social risks, such as but not limited to reputation, which may have detrimental implications on the project's success or the corporate image of those involved in the airports development and/or operation. Continuous stakeholder engagement is carried out to generate constructive feedback from key stakeholders to enhance the understanding of corporate views and public opinion. To ensure this: stakeholder engagement and communication plans are in place.

Health & Safety Risks

Airport and aviation safety is fundamental to the operation of the new supplementary airport. Safe operation will be achieved through concerted efforts of all parties responsible and accountable. Regular review of standard operating procedures will be in place prior to the airport being operational. Instilling an effective safety culture and reporting safety hazards and incidents in the development and operation stages of the airport is highly encouraged and monitored by the appropriate management level.

Operational Risks

Operational risks include potential degradation of service and delivery standards, unforeseeable disruptions to management, and maintenance challenges with facilities. To mitigate these risks appropriate control measures are in place such as; constant monitoring of service and delivery standards; contingency plans ensuring minimal impact on passengers; and regular drills to test the responsiveness of all responsible and accountable parties in case of eventualities.

Conclusion

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